Interest Rate, Inflation, and Housing Price: With an Emphasis on Chonsei Price in Korea
AbstractThis paper discusses the relationship between interest rate and inflation rate on one part and the house price relative to chonsei price (up-front lump-sum deposit from the tenant to the owner for the use of the property with no additional requirement for periodic rent payments) on the other. The key point of the paper is that the relative price of sales to chonsei depends on the ratio of inflation to real interest rate, and thus even when the monetary authority maintains a pre-announced target level of inflation rate, the relative price of sales to chonsei rises if the real interest rate is lowered. This finding seems to help understand the recent hikes of the house prices despite the stabilizing chonsei prices. Recognizing this relationship, it may be sensible to lower the target inflation rate in an economy where real interest rates permanently decline, if the society wishes to reduce its adverse effect on the wealth distribution between house owners and chonsei tenants.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11054.
Date of creation: Jan 2005
Date of revision:
Publication status: published as Dongchul Cho. "Interest Rate, Inflation, and Housing Price: With an Emphasis on Chonsei Price in Korea," in Takatoshi Ito and Andrew K. Rose, editors, "Monetary Policy under Very Low Inflation in the Pacific Rim, NBER-EASE, Volume 15" University of Chicago Press (2006)
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Find related papers by JEL classification:
- R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-01-23 (All new papers)
- NEP-GEO-2005-01-23 (Economic Geography)
- NEP-MAC-2005-01-23 (Macroeconomics)
- NEP-MON-2005-01-23 (Monetary Economics)
- NEP-SEA-2005-01-23 (South East Asia)
- NEP-URE-2005-01-23 (Urban & Real Estate Economics)
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